Paying the price for Covid

THE Government is on track to borrow £400bn because of coronavirus and that needs to be paid back at some stage.

Last year alone, before coronavirus, the Government brought in £824bn in taxes while it spent £887bn, meaning it had to borrow £63bn. While these are eye-watering numbers, most people aren’t too concerned in the short term.

Because interest rates are so low, the Government can borrow this money at 0.39 percent on the Gilt Markets. There are even three-year

Government gilts at a negative interest rate as the UK has been considered a monetary sanctuary/safe haven for the last 20 years because of the country’s robust credit worthiness.

Ultimately, the Government will have to try to balance the books and that means increasing taxation.

I know many will say there is waste in the NHS and MoD procurement, but that has already been squeezed quite hard during the Credit Crunch crisis and years of austerity.

Some have suggested stopping the triple lock on pensions, which costs the Exchequer £6bn a year, so that won’t make much of a dent.

Some have suggested we enter into a second wave of austerity, like we saw from 2010, yet neither the voters nor the public sector would accept that. That leaves tax rises as the only option for leaders who take a responsible long-term view of the economy.

The Government could raise tax on spending with VAT increases, but it did that in 2011 and it affects the poor more than the rich.

Then it could raise it from earnings (Corporation Tax, Income Tax and National Insurance), yet it’s been proved raising these ‘taxes are counter-productive to the economy, resulting in tax receipts going down. So, some ‘think tank’ groups have suggested that we look to unearned wealth and the equity people, especially the older generation, are sitting on in their homes.

While I am in no way advocating that idea, I thought it was fascinating and wanted to know what that would mean for homeowners.

The average length of time an OAP homeowner has been in their property is 24.7 years, and on average, 75.8 per cent of that equity is profit. So, if say a capital gains tax of 10 per cent was placed on any profit, it would raise £107.84bn over the next 20 to 25 years.

If every OAP homeowner in Newbury had to pay a 10 per cent capital gains tax when they (or their descendants) sold their home, that would cost them £28,183 each (or a total of £130.37m). The generation who bought these homes saw mortgage rates of 16 per cent in the early 1990s, meaning for every pound borrowed, they ended paying back £3 to £4.

Also, let’s not forget all the money spent on maintenance – money that has already been taxed.

The upshot will be this would stop OAPs selling their homes as it would discourage older people from trading down to a smaller home, making it even harder for younger families to find a big enough home to live in. Also, many people use the equity in their home to pay for retirement care, so if that is going to keep the debts down, the Government will have a larger social care bill in future years.

One school of thought could be taxing future tax-free gains for all homeowners, although for the Tories, this might be a step too far. One way or another, this £400bn (or £14,440.43 per household) must be paid back. Nobody likes paying more tax, yet is there is a lot of wealth tied up in property. Please tell me your thoughts on the matter…

K